Trade Like Seth Klarman

USA Mobility has $43 million in cash, no debt and an enterprise value of $588 million. With earnings before interest, taxes, depreciation and amortization (EBITDA) of $170 million, the company currently trades at 3.5 times cash flows. While paging is a declining business, there are some industries that will always remain customers, including doctors, law enforcement, etc. Meanwhile, the rate of decline has slowed year over year from 22% to 20%. While this can hardly be considered great news, it does suggest that at some point the decline in customers will stabilize. My personal feeling is that USMO is an ideal candidate for an LBO. A private-equity firm can borrow at 8%-9%, run this company into the ground, and still pocket several hundred million on the investment.

The cast of investors is a who's who of value investing. Not only Berkowitz and Klarman, but Fairholme, Contrarian and Jana are in the stock.

John B Sanfilippo & Son

Baupost just filed last month that it owns more than 13% of John B Sanfilippo & Son (JBSS - commentary - Cramer's Take). The company started in 1959 and it processes, packages and distributes shelled nuts of all sorts. Additionally, the company offers candies, toppings for ice cream and yogurt. It sells to wholesalers, grocery chains, convenience stores, bakeries and the like.

The stock is bouncing off of a recent 52-week low of $11.61 that it hit after it announced that a second quarter loss and said it was not in compliance with certain financial covenants.

The company has increased revenue every year for the past five years and up until this past year had also increased its net income and earnings per share. Part of the decline in net income was due to a decrease in margin brought on by higher tree nut costs.

I expect this decline in margin to be reversed because the company announced that pecans and almond prices declined toward the end of the quarter (see my article on vanilla for how high prices in a food commodity tend to reverse over time). The company also is consolidating various facilities to cut costs.

A bet on this company is a bet on its stability (people will always be eating candy and their customers aren't going anywhere) and a bet that margin pressures will reverse.

QLT

QLT (QLTI - commentary - Cramer's Take) describes itself as a "global biopharmaceutical company specializing in developing treatments for eye diseases as well as dermatological and urological conditions."

The company has almost $300 million in net cash and a market cap of $700 million. It has cash flows of $100 million that leaves it with an EV/EBITDA multiple of only 4. Despite putting up a net income loss of $400 million last quarter due to a writeoff, the company remains in solid financial shape and has even increased its share buyback program to $100 million from $50 million.

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At the time of publication, Altucher and/or his fund was long USMO, QLTI and JBSS, although positions may change at any time.

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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